"Sound financial planning is essential for the success of any enterprise". The following points explain the importance of financial planning:
(i) It makes the evaluation of actual performance simpler by giving out specific objectives for various business units.
(ii) Helps in avoiding surprises and shocks : Through financial planning, an organisation can detect situation of shortage or surplus of funds that may arise in future. Therefore, it prepares the managers in advance for such situation.
(iii) Improves coordination : Through financial planning, various business activities such as sales and production are coordinated in a better manner. Such coordination ensures smooth functioning of the business.
(iv) Reduces wastages and duplicity : Financial planning clearly defines the policies and procedures for working, which in turn helps to reduce duplication of work as well as avoid wastage of time and efforts by filling gaps in planning.
(v) It provides link between investment and financing decisions on a daily basis.
(vi) Link between the present and the future: Financial planning acts as a link between the present and the future. This is done by providing the information such as future availability and requirement of funds.